“Looking at all the beautiful things the Lord has done strengthens you.” – Anonymous
Owning a home comes with its fair share of financial responsibilities, including managing escrow accounts for property taxes and insurance. Escrow accounts are established by mortgage lenders to ensure these expenses are paid on time. However, for financially savvy homeowners, the idea of having their hard-earned money sit idle in an escrow account may not be appealing, especially when there are opportunities to earn higher returns. Furthermore, the unpredictability of mortgage companies collecting too much or too little can lead to unwelcome surprises, such as receiving a sudden letter in the mail stating an escrow shortage, often amounting to hundreds of dollars. This can necessitate immediate action, either by coming up with the shortfall or facing an increase in monthly payments, compounding the issue if taxes or insurance rates have simultaneously risen.
In this guide, we’ll explore how to request an escrow waiver from your mortgage company and how to put your escrow money into a high-yield savings account to earn interest.
Understanding Escrow Accounts
Before delving into the process of requesting an escrow waiver, it’s essential to understand what an escrow account entails. When you have a mortgage, your lender may require you to pay into an escrow account each month along with your mortgage payment. This escrow account is used to cover property taxes, homeowners insurance, and sometimes other expenses like homeowners association fees.
While escrow accounts offer convenience by spreading out these expenses over the year and ensuring they are paid on time, they typically do not provide any interest on the funds held. This means that your money is essentially sitting idle, missing out on potential growth opportunities.
Requesting an Escrow Waiver
Some mortgage lenders may allow homeowners to waive escrow accounts under certain conditions. However, not all lenders offer this option, and eligibility criteria vary. Here’s a step-by-step guide on how to request an escrow waiver from your mortgage company:
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Review Your Mortgage Agreement:
Start by reviewing your mortgage agreement or contacting your lender to understand their policies regarding escrow accounts and waivers.
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Check Eligibility:
Determine if you meet the eligibility criteria set by your lender for waiving escrow. This may include factors such as your loan-to-value ratio, credit score, and payment history.
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Prepare Documentation:
Gather any necessary documentation required by your lender, such as proof of insurance coverage and property tax payments.
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Submit a Formal Request:
Submit a formal written request to your mortgage company expressing your desire to waive the escrow account. Be sure to include any supporting documentation and follow any specific instructions provided by your lender.
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Await Response:
Your lender will review your request and notify you of their decision. If approved, they will provide instructions on how to proceed with managing your own escrow payments.
Putting an Escrow Waiver in a High-Yield Savings Account
Once you’ve successfully obtained an escrow waiver, you’ll need to manage your property tax and insurance payments on your own. One option for maximizing the use of your escrow funds is to deposit them into a high-yield savings account. Here’s how to do it:
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Research High-Yield Savings Accounts:
Research financial institutions offering high-yield savings accounts with competitive interest rates. Look for accounts that have no monthly fees and provide easy access to funds. Examples of some are: Ally Bank (this is what my family has), Discover Bank, Sofi and American Express.
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Open an Account:
Once you’ve identified a suitable high-yield savings account, follow the institution’s process to open an account. This typically involves providing personal information and funding the account with your escrow funds.
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Set Up Automatic Deposits:
To maximize the growth of your escrow funds, consider setting up automatic deposits from your checking account into the high-yield savings account. This ensures consistent contributions and helps you take advantage of compound interest. This is how you will make sure you have enough money when your taxes and insurance are due.
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Monitor and Manage:
Regularly monitor your high-yield savings account to track the growth of your escrow funds. Make sure to budget for upcoming property tax and insurance payments and withdraw funds as needed.
Conclusion
Requesting an escrow waiver from your mortgage company and depositing your escrow funds into a high-yield savings account can be a strategic financial move for homeowners looking to maximize their savings. By taking control of your escrow payments and earning interest on those funds, you can make your money work harder for you and potentially accelerate your path to financial freedom. With a fixed-rate mortgage, opting for an escrow waiver ensures your monthly mortgage payment remains consistent, free from fluctuations caused by escrow shortages, offering you peace of mind and financial stability.
Finished Reading:
Only Receive -No Barriers, No Boundaries: A magnificent book about how people are missing out on receiving their blessings from the Lord. Highly recommend to read.
Traffic Secrets: This book is so great on how to market on the different platforms and how to find your dream customers. Great read for business.
